MARKET COMMENT: UK Stocks Lose Momentum Ahead Of FOMC Minutes

Wed, 19th Feb 2014 16:53

LONDON (Alliance News) - UK stocks have struggled to get off the ground Wednesday, closing broadly unchanged despite some impressive individual stock performances. The FTSE 100 initially opened higher, continuing a rally that has seen the index retrace most of January's losses. However, after breaking above 6,800 points in early trade, stocks lost momentum and the blue chip index ended the day flat.

The FTSE 100 has closed flat at 6,796.71, the FTSE 250 has closed fractionally higher at 16,347.33 and the AIM All-Share has closed up 0.2% at 881.96.

Major European stock markets have also struggled, with the CAC 40 closing up 0.3% and the DAX closing flat.

The headline rate of UK unemployment increased in December to 7.2%, from 7.1% in November. There had been a range of expectations ahead of the release, but with the central bank moving away from targeting unemployment alone as a measure of when to raise interest rates, the numbers proved less market-moving than they may have previously been.

"This up-tick in unemployment reinforces the prospect that interest rates are likely to remain at current levels for some time to come, particularly in light of yesterday?s fall in inflation to 1.9%," said CMC Markets chief analyst Michael Hewson.

The minutes of the Monetary Policy Committee's last meeting were released at the same time as the unemployment numbers, and showed the nine MPC members were unanimous on the decision to hold interest rates unchanged, as expected. Members were not invited to vote on the recent change to the bank's so-called forward guidance on when interest rates might rise, but were in agreement on the need to look at wider economic measures.

The committee also indicated that even when rates do rise, the new "norm" for rates may well be lower than was perceived before the financial crisis.

"Even when the economy had returned to normal levels of capacity, and inflation was close to target, the appropriate level of Bank Rate was likely to be materially below the 5% level set on average by the Committee prior to the financial crisis," the minutes say.

The pound slid against the dollar to a session low of USD1.6632 after the release. However, sterling regained strength throughout the day, receiving an afternoon boost against the dollar after some weak US economic data and at the close of the equity markets is trading higher, currently at USD1.6715.

US housing starts and building permits came in slightly behind economists' forecasts, which many analysts suggested was not so much of a surprise given the recent run of poor US data, which has been broadly blamed on the bad weather, "After all, who builds houses in a blizzard," said CMC's Hewson.

Investors will be looking for the Federal Reserve's opinion on the recent run of poor US data, when the minutes of the US central banks latest policy meeting are released later Wednesday, at 1900 GMT.

Within UK equity movers, Sports Direct International was the stand out FTSE 100 gainer Wednesday. The retailer leads the gainers in the FTSE 100, up 5.7%, after saying gross profit grew by 14.6% in its fiscal third quarter, buoyed by double-digit revenue growth fuelled by strong growth in retail and online sales. Liberum Capital said it is impressed by the retailer's margin expansion in a tough trading environment.

BAE Systems received an early boost after the announcement that the governments of the UK and Saudi Arabia had finally reached a deal on higher prices for the Typhoon jets that Saudi Arabia ordered back in 2005. The shares jumped to the top of the FTSE 100 leaders board in early trade but by the end of the day have ended up 0.1% lower. The aerospace and defence company is due to report its full-year results on Thursday.

Rolls-Royce, which makes the engines for the Typhoon jets, seemed to receive a bigger boost from the announcement. After its shares slumped in recent sessions following warnings over defense spending cuts, Rolls-Royce closed up 2.4% Wednesday.

Barclays, AstraZeneca, GlaxoSmithKline, Carnival PLC and Reckitt Benckiser all went ex-dividend Wednesday, providing a drag on the index.

Thursday brings the European Markit PMI's for February, with the French numbers first up, at 0758 GMT, just before the equity markets open. Economists expect both the manufacturing and services PMI's to have increased slightly but to both remain in contraction territory, just below 50.0.

The German numbers, out at 0828 GMT, are expected to continue to show strong growth, with the manufacturing and services numbers forecast by FXstreet.com to come in at 56.3 and 53.4 respectively, up from 54.3 and 53.1. The composite PMI for the eurozone as a whole, due at 0858 GMT, is expected to have increased to 53.1 in February, from 52.9 in January.

Ahead of those, the HSBC manufacturing PMI for February, due overnight, may have already provided some direction for Asian markets. Having slipped to 49.5 in January, indicating contraction, economists expect the reading to fall further in February, to 49.4.

In the afternoon, US CPI inflation and initial jobless claims data is due at 1330 GMT, followed by the US Markit manufacturing PMI at 1358 GMT, and the Philadelphia Fed manufacturing survey at 1500 GMT.

The only UK economic release Thursday is the Confederation of British Industry trends survey. The February number is expected to come in at 5, up from negative 2 in January, which would indicate a pick up in industrial orders.

In the corporate calendar Thursday, as well as the results from BAE Systems, full-year results are due from Rexam PLC, Essentra PLC, Playtech PLC, and Go-Ahead Group. After being cut to Sell by UBS on Tuesday, due to increased political pressure to cap energy company profits, Centrica will also report full-year results Thursday.

By Jon Darby; jondarby@alliancenews.com; @jondarby100